HDFC Bank profit rises 33% on robust growth in fee income

HDFC Bank profit rises 33% on robust growth in fee income

Mumbai: HDFC Bank Ltd, India’s second largest private bank by assets, posted a 33.2% rise in net profit to 1,114.71 crore in the fourth quarter from 836.62 crore in the year earlier, riding on robust growth in fee income.

Another private bank IndusInd Bank Ltd had a 75% rise in profit to 171.76 crore from 97.96 crore on account of a gain in core interest income.

Also See | Fee income, lower provisions boost HDFC Bank’s profit

HDFC Bank slightly exceeded the expectations of 20 analysts polled by Bloomberg, which had pegged profit at 1,100 crore. It also announced a stock split of one equity share into five.

IndusInd Bank’s interest income, the main income from banking operations, rose 45.62% to 1,048.84 crore from 720.21 crore last year as demand for loans accelerated in the last quarter of the financial year.

Both interest income and net profit were higher than Bloomberg estimates of 569.75 crore and 161.79 crore, respectively.

HDFC Bank’s revenue rose 24% to 4,095.2 crore from 3,302.1 crore, driven by both an increase in core interest income as well as other income—fees, commisions and trading gains. The bank earned 2,839.5 crore from interest income, 20.75% more than 2,351.4 crore last year, driven by a 27.1% growth in loans. Other income growth rose 32.1% to 1,255.8 crore, mainly because of 1,000.6 crore from fees on selling insurance and mutual funds.

Net interest margin, or the difference between the yields on advances and cost of funds, dropped to 4.2% from 4.4%.

Paresh Sukhthankar, executive director of HDFC Bank, said the bank continues to target loan and deposit growth faster than the industry.

“Deposit growth at 24% is much better than the 17-18% growth for the banking system and is in pace with the 27% loan growth we have seen," he said.

The stock split is aimed at making “it more attractive for retail investors," Sukhthankar said.

The stock lost 1.89% to close at 2,315.7 on Monday on the Bombay Stock Exchange, even as the benchmark Sensex lost 1.53%. The Bankex, the bourse’s banking index, lost 1.57%. IndusInd Bank fell 1.8% to 278.4.

Though HDFC Bank’s credit-to-deposit ratio fell from 82% last year to 76%, Sukhthankar said this was more due to addition in deposits rather than lower credit disbursements.

“Deposit growth has been good but we have held on to margins because of high CASA (current and savings accounts) and the fact that deposits were repriced," he said, adding 30% of the bank’s deposits are from relatively costlier wholesale sources. CASA accounts for 51% of deposits. CASA is the cheapest source of deposits for banks as they do not pay any interest on current accounts and only 3.5% interest on savings accounts.

Savings account deposits grew 27.2% to 63,448 crore, while current account deposits grew 24.8% to 46,460 crore.

HDFC Bank earned an average of 10.5% on loans in the quarter ended March, but loan disbursals grew 0.5% over the quarter ended December. HDFC Bank’s net advances at 1.59 trillion rose 27.1% over 31 March, 2010, while deposits at 2.08 trillion rose 24.6%.

A strong retail book gives IndusInd Bank good returns on its loans, said Ashvini Patil, banking analyst at Care Ratings Ltd. “Its portfolio spreads are good and it is benefiting from good spreads on retail book. Improvement on CASA has also helped," she said.

Generally, banks earn higher interest on retail loans than corporate loans because of the higher risk associated with individual borrowings.

IndusInd’s net interest margin improved to 3.50% from 3.19% last year, while CASA as a proportion of total deposits increased to 27.3% or 9,331 crore from 23.7% or 6,322 crore.